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June 8, 2009

Economic Outlook: The greater good

by Sam Savage

The fate of U.S. automaker Chrysler LLC is under U.S. Supreme Court review after lenders refused to lie down and accept a quick sale of the company.

Persistent lenders from Indiana -- funds that hold a small fraction of Chrysler's debt -- petitioned the Supreme Court Friday to review the matter, saying several laws were ignored in previous rulings that would allow the car company to emerge from bankruptcy in about five weeks, The Washington Post reported Monday.

Holding only $42 million of Chrysler's $6.9 billion in debt did not deter the funds from pressing forward in a case that some say balances doing the right thing with doing things right.

A group of unsecured creditors said Chrysler's plan was a balance of harms, urging Justice Ruth Bader Ginsburg, who oversees the 2nd U.S. Circuit Court of Appeals, to turn down the effort to bring the case to the Supreme Court.

The balance of harms tilts so overwhelmingly against a stay that the application should be denied on this ground alone, the creditors wrote.

Under that argument, the right thing to do would be to allow Chrysler's sale to Fiat of Italy, because it would serve the greater good -- a collection of assumptions, including maintaining productivity, salvaging jobs and, not incidentally, closing the deal with Fiat before a June 15 deadline.

On the other hand, the Indiana funds argue the return on their investment should not be railroaded by a government-backed plan that favors getting Chrysler out of court as quickly as possible.

The agreement gives creditors about 29 cents on the dollar, but the fast-lane proceedings also has implications for General Motors Co., which filed for bankruptcy a week ago and also wants to get out quick.

With about $40 billion in government funds invested in auto companies, taxpayers have a direct stake in the outcome that is a classic bankruptcy court battle. By definition, bankruptcy court is about a balance of harms, what to do when individual rights -- in this case the right to make a profit -- is overwhelmed by circumstance.

Investors this week are anticipating a look at the Federal Reserve Bank's Beige Book, due for release Wednesday. A trade balance report is also due Wednesday.

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Asian markets were mixed Monday. The Nikkei 225 average in Japan climbed 1 percent, while the Hang Seng index in Hong Kong fell 2.28 percent. The Singapore Straits Times fell 2.61 percent, while the S&P/ASX3 in Australia rose 0.93 percent.